The Georgian Crisis: Impact on ETFs?

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Includes: EFZ, TUR
by: Carl T. Delfeld

What is the likely impact of the Georgian crisis on ETFs and , in particular, country ETFs?

Russia is digging in rather than pulling out.

The US and Georgia continued to dispute Moscow’s claims that its troops were withdrawing and accused Russia on Monday of continuing to destroy key military and and the country’s transport network.

The claims came as the principal United Nations refugee agency said the country had been “practically cut in two” by a bridge’s destruction on the main east-west railway and roadblocks on major roads, delaying relief for thousands fleeing the fighting between Russian, Georgian and secessionist forces.

The New York Times reports that oil exports by rail from Azerbaijan have also been suspended, according to the oil company BP. ”The railway line between Baku and Batumi (oil port) is not usable at the moment,” said Robert Wines, a BP spokesman.

Georgian Railways said a bridge on the main railway across Georgia to the Black Sea was destroyed on Saturday, halting railway traffic across the country, a key transit route between the Caspian and Europe.

Georgia accused Russian forces of attacking the railway and a Georgian radio station reported on Monday that Azerbaijan had rushed engineers to the Kaspi region of Georgia to help mend the railway, its only oil export route across the Caucasus since the closure of pipelines in the region this month.

BP closed its 150,000 barrels a day pipeline from Baku to Supsa on the Georgian Black Sea last Tuesday because of fears of fallout from Georgia’s conflict with Russia. BP also temporarily shut down a second pipeline carrying Azerbaijani gas exports to Georgia and Turkey. BP said the pipeline to Supsa had not been damaged during hostilities in Georgia.

For investors, this may mean a reversal of the downward trend in energy prices thereby boosting energy ETFs and energy- based country ETFs. Also, watch out for Turkey (NYSEARCA:TUR) which sits on Georgia's southern border and is down more than 3% in early morning trading.

Watch the empty words of the European Union meeting today showcase its lack of will to stand up to Russia in any meaningful way. This will batter the region's markets, so EFZ may be your best friend near term.